2022 Journal of Case Studies

SECOND PLACE: Mansfield University of Pennsylvania

Reinvestment Act (CRA). This act was established by the Federal Reserve in 1977 to encourage banks to meet the needs of their customers, especially those in low- and moderate-income areas. Every year, C&N invests millions of dollars in local municipalities and school districts by purchasing the bonds they issue, booking their loans, and servicing their mortgages. As shown by the wide range of programs given, C&N places a high priority on giving back to the communities it serves. Challenges Ahead The next 10 years will present their own challenges, including intense regulatory activity, inflation, and finding qualified employees. Intense regulatory activity is a common challenge for community banks, especially in the present state of the economy in May 2022. John Reber, Executive Vice President and Director of Risk Management at C&N, explained that the new leadership of the regulators and SEC are unafraid to increase the scale and vastness of the reporting that is required of community banks. The expanded regulations will be centered around a wide range of areas, including fair lending, insider reporting, cybersecurity, and digital assets (Breheny et al.). Regulators have also recently been focusing on consumer protection. As a result, changes are expected to come soon that may regulate the amount of fee revenue banks are allowed to generate from customers. This will cut back on a portion of C&N’s revenue and may decrease net income. All of the new regulations will add to the resources that C&N must devote toward compliance.

The next 10 years will present their own challenges, including intense regulatory activity, inflation, and finding qualified employees.

Inflation, which is currently at a 40-year high, also presents a multitude of challenges for C&N (Wile). In March 2022, Federal Reserve Bank began to increase the federal funds rate in response to high inflation, which has led to an increase in treasury rates. The same incremental increase has not translated to the municipal bond market, which is C&N’s primary investment market. This leads to a smaller spread between its investments and an unrealized loss in the positions that C&N invested in when rates were so low in 2020 and 2021. Market analysts anticipate that the Fed will continue to raise rates until the end of 2022, making the funds rate 2.00%-2.25% (Ghosh and Bhat). Higher interest rates make borrowing more expensive for consumers, which simultaneously decreases demand for loans. High inflation combined with rising interest rates also negatively impacts individuals’ ability to repay their debt.

37